COURT FILE AND PARTIES

COURT FILE NO.: CV-11-423434

DATE: 20120420

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1654776 Ontario Limited, Plaintiff / Applicant

AND:

Sinclair Stewart and The Globe and Mail, Defendants / Respondents

BEFORE: Justice E. P. Belobaba

COUNSEL: Paul Bates, Doug Worndl, Dimitri Lascaris and Robert Gain for Applicant

Peter Jacobsen, Paul LeVay, Tae Mee Park and Justin Safayeni for Respondents

HEARD: March 21, 22 and 23, 2012

ENDORSEMENT

[ 1 ] This application for a Norwich Order [1] turns on the following question: should a newspaper be required to disclose the identity of confidential sources because their published statements about a high-profile corporate transaction were possibly in breach of provincial securities law?

[ 2 ] The applicant says that the sources’ statements definitely breached securities law, undermined the integrity of the capital markets and caused significant trading losses. The applicant intends to commence a class action and wants the sources identified so they can be added as named defendants.

[ 3 ] The respondents deny any breaches of securities law and, in any event, point to two recent decisions of the Supreme Court of Canada that have recognized “the special position of the media” and the importance of protecting secret sources. [2]

[ 4 ] Both sides agree that the confidentiality of journalistic sources is not guaranteed under Canadian law. Journalist-source privilege is not a class privilege. Whether or not a newspaper or other media will be required to disclose the identity of its confidential source must be determined on a case by case basis. [3]

[ 5 ] The question as framed - should a newspaper be required to disclose the identity of confidential sources because their published statements were possibly in breach of provincial securities law - suggests the answer.

[ 6 ] For the reasons that follow, I have concluded that the requirements for a Norwich Order have not been satisfied. The confidentiality of the newspaper’s sources should be preserved. The application is dismissed with costs.

Background

(1) The leveraged buy-out of BCE

[ 7 ] The context of this application is the attempted leveraged buy-out of BCE in 2008 by a private equity consortium led by the Ontario Teachers’ Pension Plan. Had the deal closed, it would have been the largest corporate takeover transaction in Canadian history and probably the largest leveraged buy-out in world history. As it turned out, the transaction was terminated in December, 2008.

[ 8 ] This application, however, relates to what happened in and around June 30, 2008. The global credit crisis was in full force. There was world-wide financial turbulence. The completion of the BCE ‘going private’ transaction had become a huge business story that was generating hundreds of news articles.

[ 9 ] On June 20, 2008 just ten days before the June 30 closing date, the Supreme Court of Canada provided the required legal approval. BCE was of course delighted with the decision and announced the same day that it now expected to close the transaction in the third quarter of 2008. The lenders in turn announced that they remained committed to the transaction and would continue to negotiate the financing documents in good faith. All that remained was the finalization of the financing arrangements.

[ 10 ] It became apparent, however, in the days following the Supreme Court decision that the negotiations between the buyers’ consortium and the lenders were not going well. Various newspapers, citing confidential sources “close to the transaction”, reported that the deal was in difficulty, could “go off the rails” and that it would probably not close in the third quarter as BCE had stated. Indeed, one source said it would be a “miracle” if it closed by Christmas. These articles appeared between June 20 and June 30, 2008.

[ 11 ] Sinclair Stewart, then a financial reporter with the Globe and Mail (and now its national editor), was deeply immersed in the story and had already written dozens of articles describing the deal’s progress. Many of the articles relied on information provided by confidential sources that were said to be close to the transaction.

(2) The news article

[ 12 ] The article in question herein was published on June 30, 2008 (“the Article”) and appeared on the front page of the Globe and Mail’s business section. It was titled:

Haggling may stall BCE deal till year-end; Lenders are balking at the purchase price as buyers dig in; “They’re at $42.75, and damn the torpedoes”.

[ 13 ] In the lead paragraph, Stewart wrote that the “problem-plagued $35 billion takeover of BCE Inc. will likely be delayed until the end of the year owing to the increasingly fractious negotiations between the company’s private equity buyers and a syndicate of lenders who are pushing to lower the value of the buyout, according to people involved in the negotiations.”

[ 14 ] Stewart then went on to provide a more detailed discussion that included references to various sources. The confidential sources at issue herein were quoted as follows:

• “Several sources described the tenor of the discussions as grinding and suggested that the parties remained far apart on a number of key issues.”

• “ ‘Everyone has underestimated when this deal gets done,’ said one executive at the bargaining table. ‘It’s Christmas’ ... The source added he did not think the buyers and the banks would reach an agreement over the financing terms this summer, if at all.”

• “Two high-level sources, one at BCE and another that is participating in negotiations, insisted that the company’s embattled board had little appetite for lowering the price of the offer.”

• “ ‘They’re at $42.75 and damn the torpedoes,’ said one of the sources.” [4]

[ 15 ] Just four days later, on July 4, 2008 BCE announced via press release that a final agreement had been achieved and definitive financing was in place. BCE had succeeded in retaining its $42.75 share price. Closing was set for December 11, 2008. (As things turned out, however, the transaction never closed. The deal was terminated on December 11, 2008 because the required solvency certificate could not be obtained.)

(Sections continue exactly as in the source text.)

Belobaba J.

Date: April 20, 2012